Big Wave Trading incorporates a Mechanical Disciplined Signal Generated System and uses a Market Model system to invest profitably in the stock and futures markets. Big Wave Trading also incorporates a strict risk management system and cuts losses immediately if a new purchase does not work in our favored direction right away.

Monday, April 30, 2012

Weak economic news helped put a stop to the recent bounce off the lows as the market put in its first negative month since November 2011. Volume came in lower on the day despite the market closing lower. Certainly a positive sign, but we’ll need to see the market need to build upon the action ending last week. Mostly a boring market day overall with not much doing and we aren’t about to over analyze it. We’ll need to see this market continue to act proper to stay long.
There are certainly a few good things going well for this market. The NASDAQ finished out the week with solid gains and volume jumping each day. This was a bullish sign institutions were willing to pay up for positions, something you only see in solid uptrends. We’ll need to see this continue to stay with our buy signal on the market.
It is quite amazing the market has been able to keep a float for so long. We have been able to skirt any disaster, but have made things worse for us down the road. At the end of this year there are some $500bn taxes coming due that will significantly impact the economic standing of this country. As a nation the United States has chosen to continue to lay the burden on its younger generation to pay for the mistakes of the prior generation. The amount of debt outstanding will at some point become to0 great of a burden and hold this nation hostage until its liquidated. Pay attention, it will be a historic ride.
Certainly the price action of the market will give us an indication if we’ll see conditions worsening. Until such time we’ll continue on our current path and leave the worrying to someone else. Cut your losses short!

Saturday, April 28, 2012

“When you are starting out, it is very important not to get too far behind because it is very difficult to fight back. Most traders have a tendency to take risks that are too large at the beginning” – Gary Bielfeldt
“Professional traders manage their trading to assume that each trade may be a loser.” -Peter Brandt
The Big Wave Trading Portfolio is currently under a BUY signal after having to suffer through three straight SELL signals that were followed by cutting losses and returning to NEUTRAL. The current BUY signal is mainly being produced by the mere fact that the market will not sell off following all of the recent distribution days and is back above its 50 day moving average. Volume on the upside continues to be well below what we would consider a strong BUY signal and it remains a BUY signal basically due to these CANSLIM quality stocks. A lot of CANSLIM quality stocks have built or continue to build quality bases. On the day of the BUY signal on Thursday tons of CANSLIM stocks broke out of very constructive base patterns. Despite these very high quality long signals, Big Wave Trading is not investing up to the capacity that it should be now due to the recent false signals in our model which in the past has not produced three false signals in a row so fast. This is 100% a function of the current market and not our model as 1976-1978 did not even produce this kind of low volume misinformation. Clearly, price is the only thing that matters when stocks are trending up. Volume is irrelevant. At the same time, even if the chart is in perfect order, our portfolios will not tolerate losses and pair back anywhere from 10% to 25% of our positions in stocks if they show losses. Overall, it appears these breakouts are stronger than the breakouts in January as the current consolidation period has given many of these stocks base-on-base patterns or ascending base patterns. The bases these high quality stocks broke out of in January while sound came from the very volatile July-December period in the market thus making some of them suspect. This recent consolidation has tightened many of these charts up. While saying all of this, we are completely aware that the volatile market may throw us back into a NEUTRAL signal at any moment. Also, we realize we are deep in our third year of a QE led uptrend and we remain in our stance that we are near the end of this big bull market rather than a start of a brand new bull market. However, we do not trade off of our opinions. We trade off of real price signals based on 130 years of stock market history and 200 years of futures history. We may think we are near a top but if the market wants to move higher and we have signals we are taking them long.
Top Current Holdings – Percent Gain (non-margin) – Date of Signal
SWHC – 84% – 1/3/12
AVD – 71% – 1/10/12
LQDT – 53% – 2/1/12
BVSN short – 48% – 3/19/12
EPAM – 33% – 3/1/12
CPWM – 30% – 3/13/12
MNST – 30% – 1/13/12
SUNH- 27% – 3/9/12
PRXI short – 22% – 3/30/12

Thursday, April 26, 2012

Another great day of stock market gains despite AAPL taking a back seat consolidating its gains from Wednesday’s market. Volume ended mixed, higher on the NASDAQ for the second straight day showing institutions are scooping up shares on the NASDAQ. The buying spree didn’t begin until the end of the day, but it came on strong and showed there might be some life left to this market. Economic news wasn’t great while jobless claims continue to be weak and is not a great sign for the job market. Just a solid day in the market and it was AAPL getting the ball rolling.
Sentiment took a dive this week as the number of bulls dropped considerably across the board to lows not seen for quite some time. It appears the crowd bought into the bearish talk out of Europe. Bears jumped on the AAII survey to the most since this uptrend began last year. Sentiment is not a perfect indicator, but it does appear sentiment got a bit overzealous to the downside.
There were plenty of breakouts today and some by solid growth companies. Everyone knows AAPL story, but a few other big names had some really nice gains. We love to see this when a market is about to rebound or start a new uptrend. A real positive is the NASDAQ getting big time support above its 50 day moving average. The combination of leaders and support above the 50 day could be setting this market to hit new highs.
Nothing is for certain, but the odds are beginning to stack up in the favor of the bulls. We aren’t going to sit here and argue with the market. It would not be a prudent move to let this market go ahead without us. Don’t argue with the market, because it doesn’t care what you have to say. Stick with the trend.
Have a great weekend!

Wednesday, April 25, 2012

The story of the day was none other than AAPL producing fabulous earnings. On the negative side durable goods orders was much lower than expected, but failed to derail the euphoria surrounding AAPL’s earnings. The stock comprises 17% of the NASDAQ 100 and a nearly 9% move helped the NASDAQ finish higher by more than 2%. Volume was higher on the day and above average an encouraging sign. Ben Bernanke and the rest of the Open Market Committee held rates steady (continuing ZIRP), boosted their economic forecast, and said they would remain ready to step in when needed. A positive day for the markets and day one of an attempted rally pushed the Big Wave Trading market model to neutral.
We’ll be looking for a big volume up day of more sometime between days four and seven. Day four will occur next Monday on month end. IBD uses 1.7% on the NASDAQ, but we’d take 1.5% on very strong volume to confirm a new market rally. Any new buys here would be very small for us, we want confirmation of a new rally before stepping into the waters.
AAPL is very likely to digest the current move and will hold down the NASDAQ. Of course, the stock could power higher from here. However, we have seen stocks like UA pull back after earnings and AAPL probably will not be any different. Remember, we saw quite the price destruction from the end of March and it will take some time to repair the damage. It is wise to stay patient and strike when the odds are in our favor.
This market continues to be a difficult one to manage! We have repeated this sentiment since this uptrend began. It would not surprise us to see this market push higher from hear testing the 50 day moving average. And with the Federal Reserve continuing its ZIRP anything is possible here. Like it or not, the Fed will continue to print money when needed to save this market. Stay disciplined and you’ll come out of this all right! Cut those losses!

Tuesday, April 24, 2012

Disappointing housing market numbers kicked started the morning economic news, but a better than expected Richmond Fed Manufacturing index was a nice surprise. While the rebound outside of the NASDAQ was nice to see the lack of volume was quite unimpressive. The real story would come out in the after-hours session with AAPL reporting its earnings. Blowing out another quarter of earnings AAPL was able to surprise the street again with fabulous numbers. Closing out the after-hours session, the stock closed off its highs, but above the key $600 psychological level since last week. Today’s session was really lackluster with not much to hang your hat on besides AAPL.
AAPL will take a back seat to Big Ben and the Federal Open Market Committee’s policy statement and rate announcement. The Fed isn’t about to raise interest rates any time soon, but the market would like to hear the Fed go beyond 2014 and state rates will remain low until 2015. May I remind you that is a full 6 years from the bottom. In 1920, the economy suffered a terrible recession (the last great recession before this one) and by 1921 the economy bottomed out and pushed higher. While there was considerable pain the rest of the 20s roared. Is the economy so bad the Fed needs to keep rates this low? ZIRP is not working and neither is pumping in further liquidity. This debate will not matter, only the direction of the market matters and it continues to be down.
A key indicator is the 50 day moving average and the S&P 500 and NASDAQ remain below this key moving average. I am sure we could see the prices jump back above this moving average, but with the current damage waged by sellers it would take a miracle to manage a new rally. Let’s also not forget we are close to May and very few uptrends have EVER started in after May. August would be the next probable month a new rally may actually begin. We’ll most likely see a lot of chop and lower prices over the next few months. Be prudent.
Volume will likely get a boost tomorrow as everyone in the world will try and position themselves after the Fed announces its decision. Perhaps we’ll get the NASDAQ to produce Day one of an attempted rally, but the odds are not in favor of a new uptrend forming here. Its all about price! Stay focused on it.

Monday, April 23, 2012

French elections and a debacle in the Netherlands helped spook investors sending European stock markets lower on Monday. Fears spread across the pond to the US as premarket futures were down close to one percent. There wasn’t any economic news to rattle the markets, nor help them. AAPL was able to close above its 50 day moving average, but that wasn’t before a volatile session. Buyers stepped up and supported the market at the day’s low showing a bit of strength. Volume was lower on the session as institutions weren’t too active in today’s market. We are still searching for day one of an attempted rally and a follow-through day before we get thinking about getting long this market.
Last Thursday’s market was a big tell with a lot of stocks reversing very nice gains. Not to mention the market appeared to head towards confirming a new market rally. Friday’s market was more of the same where the market was unable to sustain any resemblance of a rally. Today it was the first sign of some support, but without big volume it is hard to get behind today’s move. If volume had been huge and the market been able to climb too even we’d be signing a different tune. The market remains in a correction and we have yet to see any signs of stabilization.
To make this even more fun for the next few days will be the Federal Reserve Open Market Committee meeting kicks off and AAPL earnings after the bell Tuesday. Wednesday the Federal Reserve will announce its rate policy and the market will be dealing with AAPL’s earnings. AAPL has killed earnings! Last quarter the stock BLEW away estimates, but can it continue? Price action at the moment is very nice and given volume accompanying the action there have been big sellers dumping the stock. The stock is hanging by a thread. While the market digests AAPL’s earnings release it will have then digest the Federal Reserve’s policy statement upon its release. Will the Fed move the first rate hike to 2015?
This market continues to be difficult to tame and will continue to be until we can have a real correction without government intervention.

Friday, April 20, 2012

“Profits always take care of themselves but losses never do. ” The speculator has to insure himself against considerable losses by taking the first small loss. In so doing, he keeps his account in order so that at some future time, when he has a constructive idea, he will be in a position to go into another deal, taking on the same amount of stock as he had when he was wrong.” –Jesse Livermore
“Trading is a waiting game. You sit, you wait, and you make a lot of money all at once. Profits come in bunches. The trick when going sideways between home runs is not to lose too much in between.” — Michael Covel
The Big Wave Trading Portfolio is under a SELL signal and is taking action on a day by day basis. Big Wave Trading is currently going short stocks that have had speculative run ups in the recent months that have reversed on very heavy volume. Big Wave Trading is also using inverse ETFs to take a short position in the retirement accounts. Big Wave Trading still sits on a high level of cash and is ready to put it to work as signals generate from what appears to be a coming market sell off. While we reserve no bias as to the market at any time, our models are extremely bearish with internals and externals that make up this model giving us very clear “warning” signals.
This warning signal is a potential large market pullback. This is based off of several time, price, and volume indicators and actual action of leading, speculative, and defensive stocks. The big surprise about this is that the signals are so bearish yet we remain near recent highs in the stock market. We do not see this as strength and instead see this as a last ditch effort by bulls to hold up the tape via a very few select stocks. The leaders are clear: CMG PCLN and AAPL. Their extended to parabolic runs from 2009 to now are very clear on an arithmetic long-term weekly or monthly chart. The recent price and volume action is showing distribution.
The action on these leading stocks on top of the accumulation in inverse ETFs, the distribution in the indexes and ETFs, the breakdowns on large volume in CANSLIM quality stocks, and the void of new longs showing up in my scans make it very clear where the next big move is going to be. When will it happen? There is not one individual on the planet Earth that can answer that question. The sad thing is many people still believe there are people that can do this. They can not. No human, robot, or other entity can predict the future. It can’t be done period.
Our portfolio recently was forced to go from SELL to NEUTRAL to SELL to NEUTRAL back to SELL over the past two weeks due to our cut losses being hit off the SELL signal. There is always a safety net. For the first time in real time, since using this methodology following 50+ years of backtesting, we had a BUY or SELL signal not change despite our cut loss being hit. Our second SELL signal was hit with a cut loss via our cut loss/safety strategy. However, the model did not switch from SELL. It was a discretionary decision based on my part to cut our losses to protect against a further melt up on low volume. The fact we are back into a SELL signal proves that the model knows more than I know. That is always comforting to know.
In past studies, having three signals generated like this in a row has not happened (the market is always doing something knew!). However, when backtesting BUY to NEUTRAL to BUY or SELL to NEUTRAL to SELL signals over a one to two week time frame, the second signal was true over 85% of the time. Our speculative guess (and that is all that it is at this current point) is that having three in a row like we just went through is an even higher odd event. We will know soon enough.
Bottom line, the most important attribute of our model is that it keeps us on the correct side of the market. If the market continues to breakdown, we will press our position on the short side. If the market does not break down, it is going to be a few weeks to months before these very broken charts are going to be able to fix themselves and thus even if we re-enter a BUY signal chances of being able to put funds to work in any significant way appear thin (unless we have a HUGE volume 5% up day–that would obviously change the models mind). However, if we do enter a new BUY signal you can be 100% sure our operations on the short side will end.
Another note on the current market, the DJIA is now leading the Nasdaq RS wise and Utilities, Consumer Staples, Tobacco, and Aerospace/Defense stocks and groups are showing up in my stock and ETF scans. We have almost total confirmation that the old saying “sell in May and go away” will be of more value than “buy the Facebook (FB) IPO on opening day.” One last reminder, Big Wave Trading never holds on to a losing position. If we go short or long any position and it does not move in our direction immediately, we begin selling. No questions ask. We don’t care about being wrong or right. That is for losers. We just want to win. To win big you are going to lose a lot. Those are the hard cold facts. Get used to it or find another passion. If this isn’t your passion, find someone whose it is.
Top Current Shorts – Percent Gain – Date of Signal
SWHC – 80% – 1/3/12
AVD – 69% – 1/10/12
LQDT – 46% – 2/1/12
CPWM – 32% – 3/13/12
EPAM – 31% – 3/8/12
ULTA – 29% – 1/13/12
MNST – 26% – 1/13/12
SUNH – 25% – 3/9/12
Top Current Shorts – Percent Gain – Date of Signal
PRXI – 35% – 3/30/12
BVSN – 34% – 3/16/12
WZE – 30% – 4/10/12
SINO – 25% – 4/12/12

Thursday, April 19, 2012

Disappointing jobless claim and existing home sales put a damper on the market at the open. Buyers did show up pushing the market higher with volume on the rise. However, buyers were exhausted and it was sellers who took over and dominated for the remainder of the session. AAPL dropped below the $600 mark a key psychology area ahead of OPEX. There were plenty of stocks like RAX who had a great morning only to see sellers take over reversing gains. Volume rose on the day and given the close there isn’t much question institutions continue to dump stock on the market. Big Wave Trading market model is once again in SELL mode.

Removing the second half of the session and this market would have been sitting pretty to push higher. Strong reversals like we saw today are indicative of a very weak market. Of course when AAPL takes a dive on big volume is never helpful for the entire market. Sure, you have outliers like MLNX on the day and certainly saw great gains. On balance, unfortunately, majority of the market saw weakness and is foreshadowing things ahead.

There isn’t any economic news ahead of tomorrow’s OPEX session. Volume should pick up due to the options expiry, but it isn’t a guarantee. We have joked in the chat room we’ll more than likely see a positive day just to confuse the masses. This is not something we would trade off of, but it would be quite entertaining to see the market push higher despite today’s sell-off.

Sentiment isn’t really telling us much here as the two sentiment survey’s we track is a bit mixed. AAII survey has bulls and bears about dead even. 31% of survey respondents are bullish while 34% are bearish. It appears neutral is where many want to be right now. II survey remains tilted towards the bulls, but with only 21% of bears being recorded it doesn’t feel like we have had a big enough correction. Bottom line it appears we aren’t near a turning point according to sentiment. If anything sentiment shows confusion.

Wednesday, April 18, 2012

The market had a void to fill with the lack of economic data and turned its attention to the current European situation. Unfortunately for us the European Debt Crisis will stay with us as long as Euro Politicians kick the proverbial can down the road. Volume rose slightly on the day as the market adjusts for OPEX. Volume wasn’t overly exciting to give the indication institutions were dumping stock left and right like they were on Monday. Using the NASDAQ today was Day two of another rally attempt. While today wasn’t overly bullish at least we held within Tuesday’s range.

Today was technically a day of distribution in the markets. It isn’t until after confirmation where we worry about a day of distribution. If on day one following a follow-through day is distribution the odds are well over 90% the rally will fail. While we really don’t want to see a distribution day tucked in prior to a follow-through day the correlation to failure isn’t as tremendous if it occurred after confirmation. Keep on your toes as this market may decide to go one way or another here.

The intraday action today was quite volatile, but the action is to be expected in front of OPEX. Continue to keep an eye on AAPL as the stock trades around $600 a key psychological level for traders. If there is a battle to wage, it will be done here as market makers and option holders will adjust heading into Friday. Price is everything to us, but we do need some sort of entertainment. Unless there is a signal from price everything else is just noise.

Looking at the McClellan Oscillator we are slightly oversold, but no where near the levels we reached last week. It is quite possible we revisit them in the near future. There hasn’t been much of a recovery of stocks pushing above their 20 day this week after today’s action. We remain in limbo and the next big volume break will be foreshadowing where the market will head for the next few weeks. Keep a disciplined approach and always cut your losses short.

Tuesday, April 17, 2012

AAPL reversed its course pushing higher bringing the rest of the technology sector and NASDAQ higher. Volume was lower on the day suggesting the appetite to get back into stocks was not a top priority for institutional traders. It is true High Frequency Trading (HFT), Federal Reserve, and the lack of retail investors has skewed volume. We simply look at relative volume and ignore the noise. At the end of the trading session sellers took to INTC who was reporting after the close. The selling took some nice gains off the table. It would have been bullish if the market would have been able to close at the highs with volume surging. We’ll need to see the market confirm a new rally here shortly if we have any chance of notching new highs.

Economic news was somewhat mixed this morning. Housing starts dropped disappointing the market, but building permits jumped. Economic figures do make for good discussion points during cocktail parties or at the office water cooler. They should not be used for trading. Price is the ultimate indicator followed by volume. If you want to have an argument about the current state of the economy, go right ahead and pull the most recent jobless claims figure. However, it should be left aside when you are trading.

This week happens to be options ex (OPEX) and always lends itself to crazy moves during the week. One interesting area to watch for is AAPL and how it reacts around its $600 dollar market. Round numbers have always fascinated the financial media and during OPEX it will quite fun to see how the stock reacts. This is not to trade off of, but merely an observation of what is going on. Keep an eye on AAPL along with GOOG, PCLN, INTC, and AMZN this week. They make up a great portion of the NASDAQ and will have a heavy influence on how it trades.

This week has started off with a lot of fireworks and it should continue throughout the week. Sit back and enjoy! Cut your losses and remain disciplined!

Saturday, April 14, 2012

“Don’t spend your time and energy chasing mediocre trades and investment opportunities. Only move when the odds are overwhelmingly in your favor.” -Brian Hunt

“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor.” – Jesse Livermore

The Big Wave Trading Portfolio remains under a NEUTRAL condition but is near switching to a SELL signal. Had volume come in above average on Friday or had price dropped 2% on the SP, Russell, or Nasdaq, it would have switched. Our internal indicators that measure price, volume, and time on many different levels are all in confirmation of the short-term downtrends that are starting to appear on the indexes. At the same time, every single ETF is in full confirmation with their short-term downtrends and every single inverse index ETF is in full confirmation with their short-term uptrends. This action along with the constant non-stop poor action in individual stocks outside of the biotech and monster leading stocks (AAPL PCLN CMG SBUX) universe does not bode well for current bulls. Everything points to our model switching to SELL next week. However, there is one caveat that our model can not price in and has no way of knowing when or where it will come from. That is Ben Bernanke. As long as the government interferes with free markets price and volume is going to generate more false signals than we ever would have seen pre-2008. Since they can simply inject liquidity to a market that has no buyers, we have to respect that many high volume breakdowns are simply not going to work like they used to. If you are a big seller and you know the Fed is going to magically lift stocks higher why would you keep selling? You wouldn’t. You let them lift it higher then unload more and wash, rinse, repeat. The good news is, just like in July to August, you get a real break where sellers simply overwhelm whatever in the hell the Fed is doing. Looking at any long-term arithmetic daily, weekly, or monthly chart it is clear to see the big-cap monster leading stocks are going from extended to parabolic territory. Google finally announced a split. It staged a late-stage-base-failure breakdown on heavy volume. Now all we need is for Apple and Priceline to split and we can start to get a sense of what 2000 felt like before it ended. I will make it very very very clear that this is in no way like 1999. Trust me! However, the fact that so many CANSLIM high-quality stocks are acting so strange, volatile, and some with no rhyme or reason towards price and volume, can not overall be healthy for the market. If these leading stocks continue to hold up relatively well to the overall market, it is always possible that following a correction we could blast off higher. As of now, whether this is just a correction or the start of a new downtrend, it is pure speculation. All we need to know now is that stocks look extremely vulnerable here, the indexes carry a lot of distribution days in them, the internal momentum price, volume, and time indicators are all very bearish, recent longs failed, and new shorts are working. Those are the facts. It does not bode well, short-term, for the market. However, these facts do not matter in a world of quantitative easing. Anything can and will happen. In this stock market you are either patient and wait till all the ducks line up before you move or you must be very quick to change. If you are not quick to change in this market environment you will be dead.

Thursday, April 12, 2012

Disappointing economic news did not help the market in the early going, but sellers weren’t around to mount a defense. Steadily throughout the morning buyers pushed the market higher. European fears calmed as CDS spreads tightened. Volume slid on the day as institutions simply weren’t putting any money to work. Well below average volume has been quite pathetic on this rebound despite the extreme oversold conditions. The past two days do not instill confidence this market can go higher from here.

There were a few stocks pushing higher today like LNKD that can give you some hope this market can push higher. FIO is another, but the stock is real loosey goosey. It is quite possible that volume comes in later like we have seen in the past fooling market participants. Volume has been real pathetic and today’s volume highlighted the lack of involvement by institutions. Is there something wrong, perhaps but price will be our guide.

Sentiment figures have come down a bit week over week showing the recent decline has pushed out some weak bulls. AAII Bulls and Bears did a flip flop with Bulls finishing this week at 28% while the bears jumped to 41%. II survey remained in the bull camp, but this doesn’t come as a surprise. Perhaps this recent bounce has bulls jumping back aboard, but it is quite difficult to be overly excited over the recent rally.

The recent rally did take the extreme oversold conditions off the table, but we are still a wee bit oversold. It won’t take much for us to get back down to extremes. Today’s move marked day two of an attempted rally for this market. At this point, I can see it is quite pathetic. Sideways action would do this market some good and setup for a day 4-7 follow through day. Personally, the odds of a follow-through day feel quite slim. Anything is possible and we’ll be ready to go with whatever the market gives us!

Tuesday, April 10, 2012

European fears helped send stocks lower as Spain and Italy fears continue to gain traction. The big deal with Spain and Italy is simply the size of their economies and it is the size striking fear in the market. Sellers dominated the entire session as volume sky rocketed in panic like fashion. VIX jumped to its highest level since early March. Not a good day for those who were long the market as there isn’t much to point to as a positive. The lone positive was in after-hours as Alcoa posts better than expected earnings and the stock jumping more than 5%. A very bearish day for the markets as the Big Wave Trading model goes into Sell Mode.

The difficulty here will be whether or not the market will continue to sell off here. If it does look out below as it could get really nasty. However, there is enough evidence we’ll see a bounce we can short into. As of today’s close the McClellan Oscillator was sitting at -377 a very extreme level. We can certainly see the market get even more oversold, but with today’s reading it is hard to believe we’ll fall much further.

Leading stocks didn’t have much support today either, but given the size of the selling no one escaped. There are many reasons for the market to sell-off, but we know it is better to act rather than trying to figure out the reasoning. Sure, Europe is a great reason for the sell-off and Spain and/or Italy’s failure would bring on some pain. But, this market has gone straight up on the back of AAPL, CMG, and PCLN. A correction here is not out of the question it is unfortunate volume kicked into hyper gear today.

Earnings season was kicked off by Alcoa during the after-hours session. The stock posted better than expected earnings and the market responded by sending the stock higher by 5%. Many will view Alcoa as the unofficial barometer for the first quarter earnings season. It will be fun to watch the entire earnings season unfold.

Monday, April 09, 2012

The March jobs report released on Friday was quite disappointing as just over 100,000 jobs were created. A record number of people leaving the labor force helped unemployment drop to 8.2%. Futures indicated the market wasn’t about to respond well to a poor jobs report and today’s market certainly indicated weakness. The lone positive on the day was a few leading stocks finished in the green and in the short-term we are oversold. Big Wave Trading’s market model remains in neutral mode while this market is in correction.

Only 23% of stocks remain above their 20 day moving average and 40% above their 50 day moving average. These numbers are showing the market is quite oversold at these levels and the market is due for a bounce. The last time the market saw these figures was back in early March as well as the week of Thanksgiving. While there is no guarantee we will see this market rebound to new highs we can be certain some sort of bounce may occur. Piling onto the oversold bandwagon the McClellan Oscillator now stands at -287. An extreme oversold reading giving credence to a possible market rebound ahead of earnings season.

Earnings season is upon us and AA is set to report earnings after tomorrow’s bell. Every quarter we get to experience the blow-ups and melt-ups. This earnings season should be no different! If you are carrying a sizeable position in a stock it is wise to lighten up ahead of earnings. While you may miss out on some gains you’ll miss out on some big time blow ups. Pre-announcements are unavoidable like PMTC even though it failed a pocket pivot. You can avoid stocks blowing up by simply reducing the size of your position ahead of earnings.

Trend followers do not need to worry about earnings season, simply following the trend and a sell discipline will reap huge rewards. Forget opinions, they are simply guesses and do not give you an edge in the market. Enjoy earnings season and remember to cut your losses short.

Saturday, April 07, 2012

The Big Wave Trading market model went through a serious of changes this week turning from a full BUY signal to a cautious BUY signal to a NEUTRAL signal by Thursday. This NEUTRAL signal means that there is no statistical edge one way or the other as measured by all of our internal indicators. While under a NEUTRAL signal, BWT will only go long the highest quality leading stocks with the strongest chart patterns, will operate from the short side on the best topping patterns, and will eliminate all losers immediately. This means that if we go long or short a stock and it does not move in our favor on day one we are out some of it to all of it. Even if that loss is only $1. No questions asked. It is still not a stock pickers market. That is, of course, you are long PCLN CMG or AAPL. If that is the case then it is a stock pickers market. If the action in these leading stocks doesn’t confirm the mantra “focus on the leaders” I do not know what does. One particularly scary aspect of this recent rally is the drawdown in the BWT accounts from mid-February to Friday. BWT was working on some solid gains when all of a sudden March hit. March has given quite a few long signals in high quality leading stocks that have led to consistently cutting losses. This isn’t happening every once in a while. It is happening on virtually every trade since mid-February. This pattern is following the same pattern of January 2011-May 2011 where the methodology we use diverged very negatively from the overall market. For the bulls sake, we can only hope this is not going to end up in a repeat of that year. The truth of the matter is that March was brutal for Big Wave Trading. In fact, it was a shocker. Watching large gains slip away (just like the gains from September 2010 to January 2011 being destroyed from Jan 11 to May 11) is always a humbling experience. Yet it is also a chance to learn and grow. And that is what we have done. It is clear the market model timing methodology is far superior to stock picking currently. Due to this, more capital will be put to work on the model signals than before. Also, playing speculative stocks with unsustainable run-ups and criminal pump-and-dumps on the short side will become a bigger player in our portfolios. Stock picking using the chart patterns that helped create vast wealth from 1996-2000, 2003-2007, somewhat in 2009, and in late-2010 for me will come back in fashion. However, right now, clearly, it is not in style. during any other rally in the past the top percent gainers below would be nearly doubled. Outside of three stocks, the returns have been paltry. As long as this methodology remains out of style, our portfolios will adjust accordingly. I hope everyone is enjoying their long weekend. Aloha.

Wednesday, April 04, 2012

Today’s market session sends the market into correction mode switching the Big Wave Trading market model to neutral. Selling dominated the session as gold and silver prices fell hard on the news the Fed would not immediately step in with QE3. Volume jumped on the day as the money printing thesis being struck down and longs exited. The late day push was a bit weak, but was able to get this market well off the lows of the session. Despite the rally the damage was done and we’ll adjust to the market.

Following the FOMC meeting minutes yesterday it is quite clear the market as a whole is a junky hooked on the monetary “juice.” If the central bank will stay true to its word we’ll get a sense of how strong this market really is. During the most recent bank stress test the central bank used a 50% equity decline as a scenario, but would it step in prior to a 50% equity decline? If the market falls from here it will prove this market has been a sham propped up by the Federal Reserve. Whatever the case may be we’ll be on top of the market.

As it stands now the market is in correction mode, but we aren’t in a full sell mode. The McClellan Oscillator now sits at -193 at an extreme oversold level. While not perfect it has been an area where stocks have been able to rebound from. Just a few weeks ago the oscillator was in a similar position. It may be a bit obvious to sell here, but make sure you stay disciplined in your strategy. If you have sell signals take them! It still would not surprise me to see the market gets a lift in the next few days to clear some oversold levels.

Tomorrow’s action will certainly be interesting as I wouldn’t be surprised if this market moves lower ahead of Friday’s job figure. Stick with your game plan!

Tuesday, April 03, 2012

The market will have to go it alone without the Fed as the FOMC meeting minutes revealed the central bank is sitting on its hands. What was the impressive part of the day was not the move off the lows of the session, but leading stocks kicked ass and took names. While the move off the lows was quite bullish for stocks it was leading stocks stealing the thunder. Volume increased across the day giving a day of distribution across the board. All in all not a bad day considering where the indexes stood after the release of the FOMC meeting minutes.

What an impressive move put on by leading stocks. AAPL and PCLN continue to dominate the market pushing into new high territories again. AAPL continues to get press about hitting the trillion dollar mark while PCLN quietly pushes higher. It does make us wonder all this trillion dollar market cap for AAPL may just be a sign a top is near. No one knows the future, it is best we leave our actions to the price and volume movements and not opinions. For now, enjoy the ride higher!

Now with the FOMC out of the way and signaling they will not intervene with QE3 we’ll get to see what this market is made of. Now, of course any pullback in the equity markets will be met with cries for further quantitative easing. You can bet just like a junky, Keynesian economists will be screaming for the Federal Reserve to pump more dollars into the system. At some point you get diminishing returns and the expected outcomes sour and become toxic to the system. At least for us we’ll be merely following the trend and prepared for whatever the market may throw at us. Ignore the hype and stick with the trend.

This uptrend has been somewhat difficult to handle and has yet to produce large moves in stocks. Sure AAPL and PCLN have been nice, but we haven’t seen too many 100, 200, 300% winners we have seen in the past. Be that as it may, this uptrend still is intact and continues to push forward.

Monday, April 02, 2012

The second quarter of 2012 got off on a good foot with Small Caps leading the market higher. Volume slipped off of Friday’s levels indicating traders and investors alike were not overly eager to buy up stocks. Positive news from ISM readings where the ISM Manufacturing index ticked higher than expected and prices paid came in lower than expected. Buyers stepped up and pushed the market higher where stocks finished up. Leading stocks enjoyed a boost today outperforming the broader market a positive sign for the market overall. If we ignore volume today was a solid day for the market.

This week is a holiday shortened week due to Good Friday’s market close. Banks are open! Holiday trading always tends to be light in volume and you can forget about weekly volume surpassing last week’s volume. If the market can avoid major distribution and reward leading stocks we’ll be sitting pretty for this uptrend to continue.

Small caps have been struggling to break out as of late and continue to lag behind the NASDAQ and S&P 500. The group led the entire market today and is looking to breakout once again. It would be a great sign for the market if this group can start to move again and lead the market. Big cap stocks in the NASDAQ and S&P 500 have been leading the way and while we won’t argue with the market we would rather see small caps lead. A healthy market needs small caps to lead the way and they just might be on their way.

The conclusion of March Madness is here and we’d be silly to go with Kansas to win. Our apologies to Kansas fans, but Kentucky has one heck of a team. Kentucky’s best 7 players all averaged 25 points or more in High School! Kansas needs a miracle. Enjoy the game!

As for this market, we continue to operate in an uptrend and without any distribution piling up on the NASDAQ it is hard to bet against this market here. Until we see reason to get super defensive we’ll operate on the long side.

Professional Stock Market Investor

I am a professional active-investor in the stock market, run my own website. I have been using a combination of the CANSLIM method with my own style of momentum investing to profitably trade my account and a few friends accounts for over twelve years. I was previously employed at a hedge-fund in NYC before moving to the most beautiful place in the USA. I love my work and I love my life. It, seriously, doesn't get any better than this.